Govt mulls use of KYC for cryptocurrency transactions

The government is mulling the use of KYC (know your customer) norms and a framework for cross border transfer for cryptocurrency transactions, which will address the issues arising out of foreign exchange regulation.

The use of cryptocurrency such as bitcoins amounts to a violation of extant provisions of foreign exchange regulation, as conversion of flat currency into bitcoins facilitates the conversion of such currencies into foreign exchange without the intervention of the Central Bank, the department of economic affairs, under the ministry of finance, said in a note.

To address these concerns, it is mulling need for KYC norms, a framework for the cross-border transfer of cryptocurrency, financial awareness programs and consumer protection norms for consumers acquiring cryptocurrency and/or transacting with cryptocurrency with bitcoins for goods or services, the department said in the note accessed by DNA Money.

The note also raised concerns on the use of Bitcoins in money laundering and terrorist finance activities.

A suitable regulatory mechanism needs to be put in place to check such transactions, it said. Globally, in Canada and the US, there are Acts in place that control money laundering and terrorist financing.

As of January 2015, the total number of bitcoins in circulation globally was about 13.7 million with its market price of about $200. There are about 90 virtual currencies operating globally.

The issue of whether virtual currencies or bitcoins should be banned, regulated or self-regulated has been going on for sometime. Earlier, the government had sought comments from the public on platform MyGov, for deciding the viability or other wise of virtual currencies. "In case VCs are not suggested to be regulated: What should be the effective self-regulatory mechanism? What measures should be adopted to ensure consumer protection in this scenario?" the government had asked the public.

The government had earlier said the use of virtual currencies such as bitcoins is not authorised by the RBI and could result in the breach of anti-money laundering provisions.

In April this year, the finance ministry had constituted a committee on this issue. The committee will also suggest measures to deal with virtual currencies including issues relating to consumer protection and money laundering, the finance ministry had said. It will also assess existing framework of virtual currencies in India and globally as well as examine the existing global regulatory and legal structures governing virtual currencies.

The committee's report is expected to be out soon.

Recently, bitcoins were in the news as the global ransomware attack WannaCry infected computers running on older versions of Microsoft operating systems and demanded a ransom of $300 in crypto-currencies for unlocking the devices.

Globally, only Japan has recognised bitcoins and it has been banned in many countries, including Russia because of issues of money laundering or financing terrorism.